Kenya’s banking sector collected KSh107.22 billion in taxes on behalf of the government in 2025, representing a 13.24% increase from the previous year and surpassing taxes paid directly by lenders for the first time.
According to a Total Tax Contribution Report prepared by PwC and the Kenya Bankers Association (KBA), the 33 banks and microfinance institutions surveyed collected an additional KSh12.53 billion compared to 2024.
The growth was largely driven by a sharp increase in withholding tax collections following changes in tax legislation and higher payments for professional services, software royalties and interest.
Withholding tax becomes largest collection category
Withholding tax collections rose by 29.4%, climbing from KSh33.97 billion in 2024 to KSh43.95 billion in 2025. The category became the largest source of taxes collected by participating lenders, overtaking employment-related taxes for the first time.
The increase was partly attributed to an expanded definition of royalties under the Tax Laws (Amendment) Act, 2024, which came into effect in December 2024.
Withholding tax collected on royalties surged by 159%, while collections on professional fees rose by 292%. The report linked the increases partly to investments by some banks in core banking systems and technology infrastructure.
Taxes related to employment and other people-related contributions increased by 6.4%, from KSh34.59 billion to KSh36.81 billion. The rise reflected higher contributions to the Affordable Housing Levy, Social Health Insurance Fund and National Social Security Fund (NSSF).
PAYE collections decline despite higher wages
Despite an increase in employee wages, Pay As You Earn (PAYE) collections fell by 2.98% to KSh30.82 billion in 2025.
Employee wages increased by 15.61% to KSh142.44 billion during the period. PwC attributed the decline in PAYE collections partly to tax reliefs, deductions and exemptions that may have lowered employees’ taxable income.
Meanwhile, excise duty collections rose by 5.46% to KSh23.90 billion, reversing a 4.83% decline recorded in 2024.
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The report associated the recovery with improved lending activity. Net loans and advances increased by 6.9% to KSh4.35 trillion in 2025, supporting growth in fees and charges subject to excise duty.
Withholding VAT collections dropped by 32% to KSh1.71 billion, while collections from other taxes declined by 10.22% to KSh860 million.
Banks’ overall tax contribution rises
The increase in taxes collected on behalf of the government helped lift the banking sector’s total tax contribution by 5.53% to KSh205.58 billion in 2025.
The amount, which includes taxes paid directly by banks as well as those collected from other parties, was equivalent to 8% of government receipts.
However, taxes borne directly by banks declined by 1.77% to KSh98.36 billion.
The report covered the year ended December 31, 2025, and was based on data from banks and microfinance institutions representing 96.9% of the sector’s net assets.
